Supply Chain Leads to Innovation

June 22, 2012 at 8:41 AM

At Rowan Companies, Brent Shinall and his team are building a strategic sourcing function, rolling out an inventory management system and supporting the global oil and gas drilling contractor’s expanding business by involving suppliers early in the sourcing process.

When the Vice President of Supply Chain first arrived at his new job in Houston in 2010, people working on the company’s drilling rigs were doing most of the sourcing and negotiating on their own; they communicated with a small purchasing group that placed POs for the goods and services they requested.

Now, supply chain is sourcing equipment for three new deep-water drill ships that will help double the size of the company--and managing relationships with suppliers that are introducing innovative new technology.

“The new ships are going to be the most capable in the world,” says Shinall, who is a member of the My Purchasing CenterEditorial Advisory Board.

Shinall added resources to the supply chain team including individuals with sourcing training, and introduced a five-step strategic sourcing process. Using the documented process today the team does most of the sourcing for the rigs; Shinall located supply chain specialists in regions of the world where Rowan Companies does business: the United Kingdom, Saudi Arabia, Malaysia, Norway and Houston. Being in the same time zone, he says, eases communications with internal customers and helps improve efficiency.

A benefit to Rowan Companies of building a strategic sourcing function is that people on the rigs no longer need to concern themselves with negotiating and purchasing. Now, they spend time doing what they’re trained to do--operate the rigs and drill for oil and gas--and bring added value to the company.

Having supply chain manage the sourcing process, Shinall says, also helps reduce chance of loss or damage to goods being delivered to the rigs which operate all over the world.

The supply chain team set to work at consolidating the company’s spending and its supply base. In the Gulf of Mexico, the North Sea and Southeast Asia, sourcing managers selected suppliers, negotiated agreements and developed for internal use a Buyer’s Guide that identifies the company’s suppliers and the goods and services it purchases through them.

People working on the rigs have access to the Buyer’s Guide through the company’s intranet; with the information in the Guide they can contact suppliers directly when they have technical questions or need to check the status of an order.

Shinall, who has experience working in supply chain for such companies as Royal Caribbean and American Airlines, compares a rig to floating production facility. A rig purchases fuel to run its engines, spare parts for drilling equipment, chemicals, MRO items--everything that keeps it operational and moving. A rig, he explains, is not like a cruise ship that maneuvers itself, a rig is moved by several tug boats. If it is going to another region of the world, it is placed on a heavy lift ship.

The supply chain team also sources for the manufacturing in South Korea of another kind of rig, one that drills in deep water. These rigs are self-propelled by massive engines and thrusters.

Like most leaders in procurement and supply, Shinall met his share of challenges as he introduced the strategic sourcing process to Rowan Companies. But he has the support of the CEO and the COO to whom he reports.

“I spent a lot of time out on the rigs getting to know the managers,” he says. “You really just have to develop that relationship. We try to do the dirty work and show we are reliable and willing to support them.” Eventually, he and the team were able to gain their trust.

For the new inventory system Shinall is rolling out, his team solicited ideas from key stakeholders who had been referring to information kept in spreadsheets or books. The team took the best of the processes and implemented a new system in the company’s SAP system. While he acknowledges that there was some hesitation at first, now the rigs recognize the benefit of using the new system.

“They can see inventory across the world and across the fleet,” Shinall says. “If they don’t have a particular critical part, they can see a rig that might have it that’s a few miles away, or they might see it in a warehouse and can have it delivered in a day. In the past, they couldn’t see that.” To learn more about the inventory management system, please see the related articleImplementing Inventory Management to Bring Value to Offshore Drilling written by Shinall and Brian Stanley, Global Inventory Manager at Rowan Companies.

Another challenge for supply chain is managing the suppliers of specialized drilling equipment. Because there’s little competition, there’s little incentive for suppliers to reduce costs. Leadtimes--and inventory--too can be an issue. “Although we may only use an item once or twice a year, we still have to keep it inventory due to long leadtimes,” Shinall says. “A rig’s day rates are $200,000 to $500,000. If it is not operating for weeks or months, it hurts our company.”

Supporting Expanding Business

With that foundation in place, Shinall and the supply chain team now are supporting the company’s growing business. As Rowan Companies expands to new regions of the world such as Southeast Asia, supply chain is there selecting suppliers, negotiating agreements and creating the Buyer’s Guide. Supply chain is developing relationships with suppliers and setting up the logistics for delivering purchased goods and services where they are needed.

Because much of the company’s purchasing is done in the U.S. and shipped to different regions, supply chain sets up consolidation points in strategic locations such as Europe, Singapore and Houston. The team works with freight forwarders and agents that help the company clear its purchases through Customs, as well as colleagues in the company’s legal department.

In addition, supply chain takes a lead role in supporting the manufacturing of the three new drill ships the company is purchasing. The team also will manage all the sourcing and logistics for the ships once they are in operation.

Supply chain meets regularly, about every six months or so, with both the manufacturer of the ships and its suppliers at its shipyard in South Korea.

At the meetings, “We ask suppliers to present their status on projects for the ships and give them opportunity to bring forth new technologies and new ideas,” Shinall says. “These ships are going to have cutting-edge technology.” Supply chain working hand-in-hand with colleagues in operations then decide on which new supplier technologies to implement.

One example of an innovative idea introduced by a supplier during one of the meetings is a new way to identify and track drill pipe using an RFID chip. On the deep-water drill ships, the pipe extends more than two miles down to the sea floor, and is capable of drilling over five miles below the bottom surface. Rowan Companies has not yet implemented the technology; supply chain is working with two suppliers to see if they can develop it and bring it to market.

“Having the RFID chip in the drill pipe allows us to scan each piece as it’s lowered down onto the sea floor,” Shinall explains. “When it comes back we can track it in inventory. If it’s moved to another ship or a warehouse, we will know that automatically.” In the past, the company had to paint numbers on the pipe.

Susan Avery

Susan Avery is Editor-in-Chief at My Purchasing Center. She writes articles, blogs and white papers and manages and creates other content for the online procurement and supply management publication. She produces and moderates roundtable discussions, podcasts, webcasts and video interviews. Susan has 30 years experience covering procurement and supply management for Purchasing magazine and Purchasing.com.

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